In this piece, I evaluated two pet medication stocks, PetMed Express (NASDAQ:PETS) and PetIQ (NASDAQ:PETQ), using TipRanks’ comparison tool to determine which is better.
Pick the best stocks and maximize your portfolio:
- Discover top-rated stocks from highly ranked analysts with Analyst Top Stocks!
- Easily identify outperforming stocks and invest smarter with Top Smart Score Stocks
PetMed is an online pharmacy for pets that sells both prescription and non-prescription medications, while PetIQ is a vertically integrated pet care company with manufacturing and distribution operations and veterinary services. PetIQ offers prescription and non-prescription pet medicine, pet supplies, and treats.
PetMed has plunged 21.2% year-to-date and is off 30.9% over the past year, while PetIQ has skyrocketed 70.4% year-to-date, although it remains off 5% over the last 12 months. Now, let’s see which stock is more attractive at the moment.
PetMed Express (NASDAQ:PETS)
At a price-to-earnings (P/E) ratio of over 1,200, PetMed immediately looks very expensive, even after its recent plunge. In fact, the company mostly traded at a P/E of between 10 and 25 over the last five years, so the recent valuation surge occurred in May and hasn’t let up. While some factors around PetMed may be worth monitoring, it just looks too risky right now, suggesting a bearish view might be appropriate.
PetMed’s profits have plummeted to the point where the company is barely profitable, generating a mere $230,000 in net income for the last 12 months. The problem is skyrocketing operating expenses without the sales growth to back it up.
PetMed completed its acquisition of PetCareRx earlier this year, which may be partially to blame for the skyrocketing expenses. However, its sales trends just haven’t been good. While many pet-related companies saw their sales surge during the pandemic, PetMed recorded a mere 9% year-over-year increase in 2021, followed by a 12% decline in 2022 and a 6% decline in the fiscal year that ended in March 2023.
Essentially, any bet on PetMed right now is a bet that the PetCareRx acquisition will pay off, but for now, things just look too bumpy. Notably, PetMed pays a dividend yield of 8.5%, which is unheard of in the space. While it may draw some dividend investors, the other trends are concerning.
What is the Price Target for PETS Stock?
PetMed Express has a Moderate Buy rating based on just one Buy rating assigned over the last three months. At $20, PetMed Express stock’s price target implies upside potential of 47.3%.
PetIQ (NASDAQ:PETQ)
Unfortunately, PetIQ is unprofitable and has been for years. Also, the company’s debt position isn’t particularly attractive. While its basic fundamentals look somewhat stable, a bearish view seems appropriate in light of the year-to-date jump in its stock price and other factors.
While PetIQ enjoyed decent sales growth of 10% in 2020 and an attractive growth rate of 19.5% in 2021, the company’s sales fell 1.2% in 2022. Meanwhile, PetIQ’s net income margin went from -10.6% in 2020 to -1.7% in 2021 and -5.2% in 2022. In short, these are not the fundamentals of a high-quality growth company.
Additionally, the firm’s net debt position has been worsening over the years. While it improved slightly to $370.7 million in 2022, it rose again to $443.3 million for the last 12 months. In short, PetIQ’s financial trends overall are somewhat lackluster, especially considering how high its stock price has gotten this year.
What is the Price Target for PETQ Stock?
PetIQ also has a Moderate Buy rating based on one Buy assigned over the last three months. At $20, the average PetIQ stock price target implies upside potential of 24.84%.
Conclusion: Bearish on PETS and PETQ
While the pet care industry has enjoyed rapid growth in recent years, increased competition is weighing on some in the space. As a result, there may be some excellent stocks in the space, but PetMed and PetIQ may not be among them.
PetMed’s return on equity has tumbled to 0.2% for the 2023 fiscal year, but PetIQ’s return on equity is negative. While PetMed’s balance sheet is decent, a wait-and-see approach may be best in its current condition, although its debt position is better than PetIQ’s. Thus suggests PetMed is the clear winner despite the bearish view on both.
